Stop Home Foreclosure

Step 4: Understand all of your options and home foreclosure alternatives

You need to know and understanding all of your options to stop home foreclosure. Not all of these options will be available to everyone in every situation. Being more informed will make you a better negotiator when dealing with your lender. For ease, the stop home foreclosure options are organized into two categories; Temporary financial problems and permanent financial problems.

Options for temporary problems

These options are more likely to apply if you are facing temporary or minor financial hardship. Life experiences that could lead to these stop home foreclosure solutions could include illness that prevents you from working for a short time or being temporarily between jobs. It is generally considered a short term loss of income.

Reinstatement

A reinstatement plan is available when you are able to pay all moneys owed to the lender in one lump sum payment. You and your lender will agree to a time when this lump sum will be due. Lenders are always interested in pursuing this option as it quickly restores a temporary financial problem. This could be a good solution if you are expecting a large payment (like a tax return, bonus, or legal settlement) sometime in the near future.

Repayment Plan

A repayment plan is similar to a reinstatement plan in that you promise to make a delinquent mortgage current. Instead of one lump sum payment, however, a repayment plan is where you gradually repay money owed over a fixed amount of time (typically 6-12 months). This is usually accomplished by paying more with each regular monthly mortgage payment until the loan is up to date. Again, you and your lender will agree to the terms of the plan including the amount of extra money to be paid each month and the time frame you will have to bring the mortgage current.

Forbearance

Forbearance is the most common tool used for a temporary problem. The forbearance agreement is when the lender allows you to make reduced payments or none at all for a set amount of time (typically 3-6 months). After the forbearance period you will again have to start making regular mortgage payments and to make good on the payment missed during the forbearance period. Forbearance is usually combined with a reinstatement or repayment plan to bring your mortgage up to date after the forbearance period is over.

Loan Modification

Under a loan modification the lender agrees to permanently change terms in the loan to make in more affordable. This may be an option if your financial problems are long term but not excessive and the lender considers you a good credit risk. There are an almost unlimited number of ways your mortgage can be modified. The most common modifications are:

Lowering interest rate Your monthly payment can be reduced by reducing the interest rate of your current loan
Switching from variable to fixed interest rate Variable interest rate loans and “ARMs” have been popular over the last few years. If you were able to make payment regularly but are now having trouble due to a rate increase, you may be a candidate for this option. The lender changes the terms of your mortgage so your rate doesn’t go up and you can continue to make your payment.
Longer loan term By increasing the length of your mortgage (usually form 30 to 40 years), your monthly payments will go down and may become more manageable for you.
Adding unpaid interest or missed payment to the principle If you had a temporary problem but will not be able to manage a repayment plan or reinstatement. The lender may add the missed payments to the loan principle and allow you to repay the missed payment over the length of the mortgage at a very low increase to your monthly payment.

Partial Claim

You may be able to qualify for a loan to make your mortgage current. This loan could come from your personal mortgage insurance (PMI) company or from the US Department of Housing and Urban Development (HUD). The loan is typically repayable when you move, sell the house, or when your mortgage matures and you build equity in your house. Your lender has to work with HUD or your PMI to get this loan. Each loan will have specific restrictions, but you may qualify if:

Your loan is at least 4 months delinquent but no more than 12 months delinquent
Your mortgage is not in foreclosure; and
You are able to begin making full mortgage payments

Options for permanent problems

If your financial hardship is permanent you may not be able to keep your home, but you may still be able to stop home foreclosure. Permanent hardships may be caused by divorce, long term illness, disability, or the death of a wage earner. Options for permanent problems include:

Assumption

An assumption is when you transfer your mortgage to someone else and they take over your mortgage and make the payments. If you can find a well qualified person to assume your mortgage, this option is a convenient way to sell your house and get out of your mortgage. Some loans are written as non-assumable, but as with all of these options, you may be able to work with your lender to modify your loan to become assumable.

Sell Your Home

Selling your home may be an option if you have more equity in your house than the amount of your mortgage. Your lender may be willing to put the foreclosure process on hold for a set amount of time allowing you a chance to sell your house and pay your mortgage in full. This can sometimes be combined with an assumption to attract more buyers.

Upside-down Sale

If you owe more than your house is worth and you have the ability to raise cash you may be able to do an upside-down sale. You can stop home foreclosure by selling your house and paying the lender the difference between the sales proceeds and what you owe. Normally, you have to pay the amount in full at the closing, but your mortgage company may be willing to work out a payment plan that allows you to pay over time.

Deed-in-lieu of Foreclosure

A Deed in Lieu of foreclosure is an arrangement where you voluntarily give the deed (title) of your property to the lender in exchange for forgiveness of you mortgage debt. This is typically the last resort prior to a foreclosure- you can’t sell your house and a foreclosure looks like a certainty then the lender will consider this option to avoid the cost of the foreclosure process. Though this is better than a foreclosure, it still has a negative affect on you credit. This option may not be available if you have other liens against your property (second mortgage, tax lien, etc.).

Pre-Foreclose Sale (Short Sale)

A pre-foreclosure sale (or short sale) is when you put your house on the market and the lender accepts the sale proceeds as full repayment of your mortgage, but the proceeds are less than the amount owed. The lender may use this option if all other attempts have been exhausted and they want to avoid the cost of a foreclosure. Your specific situation will have to be discussed with your lender, but in most cases you qualify for a short sale if:

The appraised value of your house is 70% of the amount you owe
The sales price is 95% of the appraised value
The loan is at least two months delinquent prior to the sale closing date
You're able to sell your house within three to five months

Now that you have an understanding of what options are available to you to stop home foreclosure, our next step will discuss where you can go to get foreclosure help.

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The information contained in this site is based on our opinions, research, and experience dealing with the foreclosure process. It does not constitute legal advice. If you need legal advice specific to your personal situation, please consult an attorney.